You cannot keep all of the people happy all of the time. China’s latest restructuring of a state-owned enterprise is likely to make only a small number of people very happy – and upset a great deal more.
Over the weekend, state-owned China Petrochemical Corp (Sinopec Group) announced two deals which will hurt shareholders who own its Hong Kong subsidiary, Sinopec. First, Sinopec will sell a 30 per cent stake in its fuel retailing business. Chinese white goods maker Haier, finance companies and domestic investment funds are paying $17.5bn for assets Bernstein thinks could be worth $22bn.
The second deal will save the group from a writedown on its 40 per cent stake in affiliate Yizheng Chemical. Under mainland rules, lossmaking Yizheng faced delisting next year, resulting in a writedown for Sinopec of as much as $1.7bn. To save Yizheng from delisting, the Sinopec Group parent will inject its profitable oil services group into Yizheng in return for just under $4bn in new shares of Yizheng. The price Yizheng will pay for this new business, at 10 times 2014 earnings, looks cheap – especially for a company expecting to increase earnings by nearly one half next year.